HONG KONG (Feb 14): Singaporean banks are on thin ice. The city-state's second-largest lender, Oversea-Chinese Banking Corp, posted disappointing results as delinquencies in the energy sector drove up bad debt charges. OCBC and its domestic peers have propped up profits by running down bad debt buffers, but that leaves them increasingly vulnerable to unpleasant surprises in the pipeline.

Fourth-quarter net profits at the bank dropped 18% to S$789 million (US$571 million) from S$960 million a year earlier, far short of the S$856 million average estimate of analysts polled by Reuters, as loan-loss allowances swelled 57% to S$305 million.

Banks in Singapore, the region's energy business centre, continue to reel from stress among oil and gas firms, even though oil prices have recovered a bit. At OCBC, NPLs in the oil and gas sector ballooned by a whopping 63% in 2016. About 8% of the bank's S$15.8 billion energy exposure was sour at the end of 2016. Investors should expect to hear similar stories from other Singaporean banks later this week, including industry leader DBS Group Holdings, which last year took a hit from troubles at Swiber, a local builder of offshore oil platforms.

OCBC management warned that absent a sustained recovery in oil prices, its energy-sector customers will continue to struggle. Among those OCBC clients might be local energy-services firm Ezra, which flagged a US$170 million write-down in February.

More worrying is how threadbare Singaporean banks' bad debt cushions are getting. OCBC's allowances as of Dec 31 barely covered all its non-performing assets, whereas in March 2015, it had a 66% buffer to spare. The ratios of allowances to bad debt at DBS and United Overseas Bank were similarly low as of Sept 30.

Reducing buffers can buttress earnings during a downturn. And current levels are by no means insufficient. Even so, Singaporean banks keen to maintain a reputation for prudence should be wary of going lower, given the possibility of more bad news. It's not just the energy sector that is under stress; as Singapore's economy slows, more mortgages and small business loans could also go bad.

Jun Yang is a Reuters Breakingviews columnist. The opinions expressed are his own.